Mellanox technologies, Ltd.(MLNX), is a leading supplier of high-performance, end-to-end interconnect solutions for cloud computing, storage, and communication applications in the computing, Web 2.0, storage, financial services, database markets. The company helps companies analyze the tons of data they are accumulating in the Internet era and counts Hewlett-Packard Co (HPQ.N) and IBM Corp (IBM.N) among its customers. In the area of InfiniBand (IB) chips for regulating the way of communication of servers and data storage systems, Mellanox is a generation ahead of Intel Corp (INTC) and clearly benefiting from IB gaining share in various servers/storage platforms. According to the data provided by FactSet Research, 12 analysts averagely gave MLNX stock a “Buy” rating. In view of these factors, we ranked MLNX one of the best stocks to buy. The following paragraphs will explain why:
Financials and Guidance:
For the first fiscal quarter of 2012, Mellanox posted an EPS of $0.51, a surprise of 50.00% over the analyst consensus estimate of $0.34. In April, the stock rose 52%, becoming one of the best stocks on the Nasdaq, after its big Q1 beat.
Mellanox released its second quarter earnings results on Wednesday, July 18th. The company posted $0.99 earnings per share for the quarter, $0.27 higher than the average analyst estimate and a surge of 267% over last year same period’s. Revenue was $133.5million, up 110.7% compared to a year ago, exceeding the analyst estimate of $128.3 million.
Mellanox also raised it guidance for Q3 sharply higher. Mellanox expects current-quarter sales of $152.5 million, up 124% from Q3 2011. Analysts expect sales of $104.63 million for the current quarter and Mellanox will post $2.33 earnings per share for the current fiscal year.
The favorable performance was primarily driven by strong demand for Mellanox’s high-speed interconnect products for servers and data storage systems.
The company enhanced its business through acquisition and collaboration On February 7, 2011, Mellanox acquired Voltaire Ltd. (Voltaire), a provider of scale-out data center fabrics, for $8.75 per share. Mellanox recently announced partnership with Quanta QCT, a leading provider of server, storage and network equipment to data center customers in the United States to deliver unprecedented price performance on cloud computing for enterprise and service provider data centers.
As other best stocks, Mellanox’s stock have a robust performance. In the trading session on July 19, MLNX stock price shot up 41.46%, or $27.52, to finish at 93.90, and hit 52-week new highs in the trading session. MLNX stock price has accumulatively rose 188.92% year to date. Daily volume is 883,765 shares. The latest closing price is well above the 50-day moving average of $64.63 and the 200-day moving average of $44.52. MLNX stock is expensively traded at a P/E of 158.35x, compared to the peer group average of 17.91x. The shares are modestly priced at a PEG ratio of 1.34, compared to the peer group average of 1.02.
From the perspective of strong demand for Mellanox’s products despite the economic slowdown, the health fundamentals of the company as well as the recent staggering trends of MLNX stock price, we have reasons to believe that Mellanox will continue to post pleasing results and qualify for the label of one of the best stocks to buy.
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